Australia yesterday kept interest rates unchanged following back-to-back cuts that, combined with a massive escalation in the US-China economic battle, helped push the currency to its lowest level in a decade.
Reserve Bank of Australia (RBA) Governor Philip Lowe and his board left the cash rate at 1 percent — as expected — with the Australian dollar’s more than 3 percent fall since last month’s cut aiding exporters and import-competing industries.
The decision also saw the RBA trim this year’s economic growth forecast and came against a tumultuous global backdrop as the US-China trade dispute morphs into a currency showdown.
“It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress toward the inflation target,” Lowe said in a statement. “The board will continue to monitor developments in the labor market closely and ease monetary policy further if needed.”
Australia’s economy has slowed sharply since the middle of last year as households struggling with record debt and weak income growth scale back spending.
The central bank eased in June and last month — its first consecutive cuts since 2012 — as it sought to put cash into consumers’ pockets via lower mortgage costs and drive down the Australian dollar.
“The Australian dollar is at its lowest level of recent times,” Lowe said. “Looking forward, growth in Australia is expected to strengthen gradually.”
The RBA reduced its economic growth forecast for this year by 25 basis points to 2.5 percent and reaffirmed next year’s at 2.75 percent.
The currency was little changed after the statement’s release.
Australia’s domestic picture has been eclipsed by dramatic international upheaval as the US and China traded blows over exports and currencies.
The risk is that the uncertainty unleashed by US President Donald Trump’s protectionist measures would see already cautious multinationals scrap investment plans and start firing employees.
Labor markets in the developed world, including Australia, have been a bright spot and major firms turning bearish could trigger a worldwide downturn.
“The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected,” Lowe said.
Already, commodity prices have begun tumbling, with iron ore — Australia’s largest export — falling into a bear market as investors fret about the economic outlook.
Lowe has said that he is prepared to do more with policy if the economy fails to fire.
The RBA is hoping that the US and China will pull back from the brink and that a combination of rate cuts, tax relief, a stabilizing housing market, government infrastructure and private firms’ investment plans will keep the local economy ticking over.